Assignment 3: Long-Term Investment Decisions
March 9, 2014
Managerial Economics and Globalization ECO 550
Capital Budgeting Decisions
A low calorie food or a healthy option of food is a new concept, which has gained a lot of interest in the recent times. In the previous assignment, we had discussed the background and the introduction of the company, which wants to cater to this segment. This paper will discuss the long-term capital budgeting decisions that such a company needs to make. Online a plan those managers in the low-calorie microwavable food company could follow when selecting pricing strategies for making their products as inelastic as possible. The company aims to keep the prices of its products as inelastic as possible. This means that the pricing strategy should have no impact on the way the consumers perceive and buy such products. Generally we see such demand only in situations in which the good or services are indispensable and the consumers cannot do without those. However, this is not the case for microwavable food products. There is competition in the market to keep the prices under check. Hence, the company needs to do two things to make its prices inelastic- First of all the company needs to spend money on the R&D efforts to differentiate its products from the rest of the players. This differentiation depends on the core product, advisory service that comes along with the product, packing, availability, support services or virtually anything else. As the second measure, it needs to send down two important messages to its potential as well as current customers through its marketing communication efforts- First that the low calorie food should not be choice but essential and second that the company serves this essential requirement like no one else does. Once the customers are aware and agreed with these two messages, price will play very minimum role in their buying decision. Examine the major effects the Government Policies have on production and employment predicted the potential effects that government policies could have on your company. Just like any other business, for setting up low calorie microwavable food business the government policies will play a very important role. The company needs to follow the guidelines prescribed by the local as well as the federal food and drug administration to ensure that their production methods, formulas and any other part of the business does not violate the local laws. Government policies may also be critical in deciding the necessary taxes and other duties that the company may have to pay to operate its business in a certain province. The federal as well as state governments in various states have been working on anti-obesity programs and have been proactive in encouraging the low calorie food. This could be a welcome move and the right time to start the business. According to Katherine Ralston, “if the company can get into any type of partnership with the government under which the products are served to the sections like school students or other economically weaker sections under government welfare schemes, it may be a very good source of revenue for the company.” Regulations that ensure an acceptable level of safety reassure consumers and level the playing field for producers. In the recent times, the government has been very actively involved in employment generation. There have been instances in which it has directly intervened in the operations to set the employment policies. Being in a capitalist economy, we expect only some sort of regulatory role by the government in deciding the employment conditions. However, much has changed after the recent global economic slowdown and the governments have assumed much significant role in ensuring the equitable conditions for every citizen. Even in our case, the government policies can be a key to setting up wages, working hours and conditions, safety...
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